Wednesday, June 8, 2011

OPEC Ministers, meeting in Vienna, have apparently had one of their more divisive discussions of recent times over the question of raising pumped volumes.

Saudi Arabia, Kuwait and the United Arab Emirates wanted an increase to dampen an oil price that has gained 25pc since tensions erupted in the Middle East this spring while Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran wanted to keep production unchanged.

The two camps are reported to be so far apart as to threaten the structure of the organization. While the lack of agreement (for the first time in 20 years) officially means that there will be no increase in the quotas of the different countries, Saudi Arabia may, unilaterally, move to increase production in order to meet growing demand and stop the steady increase in price. In the short term, however, the lack of agreement has had the immediate effect of increasing prices.

The proposed increase in volume was 1.5 mbd, which is roughly in agreement with the OPEC projection made through their Monthly Oil Market Reports, of a 1.4 mbd anticipated growth in demand this year. That estimate of demand growth recognized the 0.5 total drop in demand from Japan, though offsetting this with greater growth from China, and anticipating repair of the Japanese refineries. (The next report won’t be out until Friday). Given that we are now in the summer driving season for the largest customers, where demand has normally risen, the move, proposed by Saudi Arabia, would at first sight seem a rational step to keep prices under control. But given the lack of agreement, the question remains as to whether Saudi Arabia (KSA) and its allies at the OPEC table will increase production in defiance of the rest. Bear in mind that should they have the increase, and prices fall, then those countries that don’t (or can’t) increase production lose money as the price falls. However, if the price rises too much, then the world could be kicked back into recession, and global demand could fall, making everyone lose money on smaller volume.

One has only to look at the latest gas prices in this week’s “This Week in Petroleum” to anticipate how this question over the available supply of crude may well kick the graph back into an upward trend.

Demand for gasoline flickered when the price peaked, but then despite the price, and with vacation time beginning, demand has returned to last year’s numbers and may well continue to increase over the next six weeks, following that curve. That depends on how the price changes. Any indication of more oil may hold it at current levels, but without that, as demand grows globally, then without supply to meet it the price will rise until a new balance is reached.

But this brings us back to the question as to how great a price increase the world can stand, and concurrently, whether OPEC could sustain a 1.5 mbd increase in production. This really (in terms of a significant step) throws the ball back into Saudi Arabia’s court, since they are the one nation that could provide the increase in volume. And certainly in the short term there are enough wells and fields that could have production increased to give the extra volume.

Life is, however, not that simple. To bring additional complexity to the discussion Goldman Sachs has been suggesting that OPEC production will top out next year, and then begin to dwindle. Since OPEC are sensibly the only folk capable of increasing production significantly to meet growing market demand, that prediction had already roiled the market a little. Non-OPEC production has risen 0.8 mbd in the first quarter, y-o-y, but the gains from the US may be over, at the moment.

US Production of crude (TWIP)

However Saudi Arabia will not over-produce in the short term to hurt the long term production from their fields, thus gains in production in the out years will have to come from new developments. Manifa is the most immediate answer as to where the additional oil will come from, according to the new (2010) Aramco annual review. But with that oil requiring special refineries to process that aren’t anticipated to be available until 2014 for the first, and the second still not finalized, that only gets the increase to 0.4 mbd. There is some additional production that is anticipated from Safaniya, another heavy crude source, but that is directed towards planned refineries at Yanbu and Jazan, but the former is scheduled for 2014, while the latter won’t be ready until 2017. The four new oil fields (Namlan, AsSayd, Arsan and Qamran) that Aramco announced will also take time to develop. As a result the increased production that will come from Saudi Arabia are unlikely to rise much above that available from the recent development of Khurais and Khursaniya, which totals some 1.7 mbd. Some of that new production will concurrently have to offset some of the declining production in older fields

Overall production will be limited to 12 mbd, acknowledged as the maximum sustainable rate for the country, but that number includes domestic use, which is already at 800 kbd and rising.

Unfortunately the 1.5 mbd proposed for the OPEC increase will likely also include any offsetting increased production to compensate for countries in turmoil in the MENA. So, as none of those countries is looking as though stability has yet been conclusively re-established, the combined picture was not really looking that good before we got the news from Vienna.

Waterjetting Index

After writing about Waterjet Technology for a couple of years at this site I have created an index, hopefully this will be updated monthly and can be found at: Waterjet Index .

The Archive of Oil and Gas and Coal Posts

About ten years ago I began to write a blog, and after a time that transformed into co-founding The Oil Drum. Move on a few years, and at the end of 2008 I turned from being an editor there to this blog, although the OGPSS series continued to be posted, on Sundays, at TOD as their weekly Tech Talk. Some of the industrial technical descriptions of oilwell formation and coal mining are relatively timeless and useful, and so are listed below.

Along the way I became similarly cynical about some of the facts being bruited about Climate Change, and did a little study, which is documented here as the State Temperature Analysis Series. It showed that the UHI is real and that there is a log:normal relationship between population and temperature (which is also related to altitude and latitude). You can read the individual state studies, which are listed below. There will still be the occasional post on this topic.

Just this last year I was asked to write a weekly blog on the application of High-Pressure waterjetting – which is the subject that I specialized in for four decades.That too is now, therefore, a part of the contribution.

And, in my retirement, I have become curious about Native Americans and what they looked like.And so I am now learning Poser and related programs, and may inject both posts and the odd illustration – helped by the many real artists who work in that medium, as I read and try and comprehend what went on in the depths of The Little Ice Age (around 1600 – 1700).

Because I am a Celt, there will also be the odd post on my lineage and some of the DNA studies that relate to history.

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Units and Conversions

One of the problems in following stories in different countries is that they use different units and symbols. This can be a bit confusing, and so, where I can, I will try and standardize on the unit of barrel/day, or bd for oil. I will also use a thousand cubic ft kcf for natural gas. Prices will also be standardized, when I can, in $/kcf for natural gas, $/barrel for oil, and $/gallon for gasoline.

In larger units volumes a thousand barrels a day becomes 1 kbd and a million barrels a day becomes 1 mbd. For natural gas a million cu ft per day will be 1 mcf. (In many quotes this has appeared as 1 MMcf).

A billion cu. ft. is 1,000 mcf. Note that a cubic foot of gas produces 1,030 Btus - so to simplify 1 million Btu's is approximately 1 kcf, or 28.3 cu.m. of natural gas equivalent.

A ton of oil is 7.33 barrels. (Mainly used in Eastern Europe).

Since not all posts before this show these units - note that this change happened on March 3, 2009.